Suzanne, a single taxpayer, operates a printing business as a sole proprietor. T
ID: 2340463 • Letter: S
Question
Suzanne, a single taxpayer, operates a printing business as a sole proprietor. The business has two employees who are paid a total of $90,000 during 2018.
Assume that the business has no significant assets. During 2018, the business generates $150,000 of income, and Suzanne's taxable income before the QBI deduction is $155,000.
a. What is Suzanne's qualified business income deduction?
$____________________
b. What is Suzanne's qualified business income deduction if the facts are the same except the business income is $250,000 and Suzanne's taxable income before the QBI deduction is $270,000?
$___________
Explanation / Answer
SOLUTION:-
a)
1) WE ASSUME THAT SUZANNE'S BUSINESS INCOME IS SAME AS QUALIFIED BUSINESS INCOME (QBI) i.e.$150,000.
CALCULATION OF QBI DEDUCTION:-
1) 20% OF QBI (OR TAXABLE INCOME IF LOWER) = $30,000
{$150000*20% = $30,000)
2)50% OF WAGES ($90,000 * 50%) = $45,000
3) 25% OF WAGES + 2.5% OF ASSETS = $22,500
4) GREATER OF POINT 2 AND 3 = $45,000
ANSWER = LOWER OF ABOVE ( i.e. POINT 1 AND 4) = $30,000
b)
WE ASSUME THAT SUZANNE'S BUSINESS INCOME IS SAME AS QUALIFIED BUSINESS INCOME (QBI) i.e.$250,000
TAXABLE INCOME $270,000
CALCULATION OF QBI DEDUCTION
1) 20% OF QBI ( AS TAXABLE INCOME IS MORE THAN QBI) = $50,000
2) 50% OF WAGES ( $90,000*50%) = $45,000
3) 25% OF WAFES + 2.5% OF ASSETS = $ 22,500
( $ 90,000*25%+0)
4) GREATER OF POINT 2 AND 3 =$45,000
ANSWER = QBI DEDUCTION IS LOWER OF POINT 1 AND 4 i.e. $45,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.